Who should be the new president of the World Bank? To replace Robert Zoellick, who leaves in June 2012, the US has nominated Jim Yong Kim, an international health specialist and the head of Dartmouth University. Several African countries have nominated Ngozi Okonjo-Iweala, the Nigerian Finance Minister and a former managing director of the World Bank. Brazil has nominated JoséAntonio Ocampo, an economics professor at the Columbia University in New York.

An intelligent decision on who should be president of the World Bank requires an understanding of what the job involves. With its still talented staff, the World Bank remains the world’s premier source of development expertise. It fosters economic policy, banking, human development (e.g. education, health), agriculture and rural development (e.g. irrigation, rural services), environmental protection (e.g. pollution reduction, establishing and enforcing regulations), infrastructure (e.g. roads, urban regeneration, electricity), and governance (e.g. anti-corruption, legal institutions development). Over the last 65 years, it has made a major contribution to policies that have led to rapid economic growth of countries like India and China, which were once regarded as economic basket cases.

Yet the World Bank now suffers from lack of mission clarity, inappropriate strategies, systems and processes to achieve its mission, eroding skills, and a business model that is broken. The particular individual who is chosen to head of the World Bank will have to overcome these issues, or be imprisoned by them.

The track record over the last half century isn’t encouraging. In an article last year, I explained in detail why the presidents over the last fifty years have had little impact on the organization.

The world has changed but the World Bank hasn’t

When the World Bank was created in the 1940s, the USA was the supreme economic superpower of the West. Europe was in ruins. Most of the developing world still lived in colonies administered by the Western countries. Economic expertise was indisputably in the US and Europe. For example in 1945, General Motors was eight times more productive than a fledgling Japanese auto company that no one had even heard of: Toyota.

The World Bank’s governance structure reflected these realities. The US was the largest shareholder and together with the largest Western economies held a majority of the shareholding. The Soviet Union and China were outside the “free world” in which the World Bank operated: the World Bank was a bank for only half the world.

By 1968, when Robert McNamara took over as president, the scene had changed somewhat. The Cold War was still grinding on and the Soviet Union and China were not yet members. The US was still the dominant economic power in the West. Toyota was still just a blip on the horizon for General Motors [GM]. But the colonies had been dismantled and a large number of independent nations had been created. The West was anxious to help them in order to fend off the influence of the Soviet Union and the newly independent countries were hungry for money and expertise. There was thus a large demand for the Bank’s loans and assistance: McNamara was delighted to expand lending to meet the need. When petroleum prices quadrupled in 1973, there was even further need to expand the flow of resources to recycle money, sometimes bending creditworthiness standards in the process, and paving the way for subsequent debt crises.

The G7 still had control of the World Bank’s governance and often used the World Bank to pursue their policy own goals, usually for the well-intended good of the developing countries. Sometimes the policies that the West recommended for developing countries were policies that the Western governments hesitated to implement for themselves. For instance, the US notoriously recommended “health for all” for developing countries, at a time when a sizable proportion of its own population had no effective access to health care. The West also consistently recommended government budget discipline for the developing countries while its own public debt burdens were steadily growing.

2012: a different world economy

By 2012, the world looks quite different. The World Bank has become truly a “world” bank, as Russia, Eastern Europe and China are now members. The economic policies that the World Bank had recommended for countries India, China and Brazil have been spectacularly successful. While the economies of Europe and US are currently stagnant or in recession, and facing extended periods of slow growth, while accumulated debt burdens are being “unwound”. Meanwhile the BRICS—Brazil, Russia, India, China, South Africa—now offer the main hope for global economic growth or at least avoiding a global recession.

The US management model of hierarchical bureaucracy that dominated the 20th Century finds itself struggling in the 21st Century: these lumbering industrial mastodons are insufficiently agile to cope with the global competition or the rapid innovation needed in a world in which the balance of power has shifted from seller to buyer: they are dying faster and faster.

Firms from Asia like Toyota have driven General Motors and others into bankruptcy. In the West, health, education and pension plans are collapsing under their own weight and rigidities. Budget, trade and balance of payment deficits weigh on the Western economies. Like their industrial mastodons, government agencies struggle under an outmoded management model of hierarchical bureaucracy.

In 2012, perspicacious observers can see that Europe and the US are undergoing, not just a sputtering economic recovery, but a phase change to a new kind of economy—the Creative Economy—in which value to customers is the bottom line of the enterprise. In this new economy, continuous innovation is even more important than efficiency and time becomes a critical competitive weapon; the emerging economic and management models for the new economy are as likely to come from India and China as they are to come from the US or Europe.

The World Bank: still a 20th Century organization

In 2012, the World Bank resembles one of the lumbering industrial and government mastodons of the 20th Century. The underlying premise that it possesses the expertise that the developing countries need is seriously in question. The same outmoded hierarchical bureaucracy that hamstrings big industrial firms and government departments of the US and Europe is pervasive. The World Bank still operates for the most part with processes and systems that were designed half a century ago. Each project to be financed is still reviewed by an incredibly heavy governance structure.

In fact, one of the shocks for each incoming president of the World Bank is the discovery of its governance structure. Instead of a board of visiting directors who meet once a month to review and approve overall strategy and policy, the World Bank enjoys a resident board of executive directors that meet once or twice a week to review and approve every loan that the World Bank makes.

Moreover, each Executive Director has a staff who assist him or her to keep track of every relevant activity within the Bank. Worse, each government has a staff at headquarters who also study and review activities in the World Bank and give instructions to “their” Executive Director on how act and decide.

The Executive Directors meddle in everything. For instance, when Jim Wolfensohn arrived from investment banking as the new president in 1995 and proposed to use his own private corporate jet to travel to the Bank’s client countries at his own expense, the Executive Directors vetoed the proposal.

Similarly, when Wolfensohn announced upon his arrival that he had no intention of spending one or two days each week, sitting in Board meetings and listening to dreary speeches by Executive Directors about World Bank minutiae, the Board prevailed. Like his predecessors, Wolfensohn sat in Board meetings, one or two days a week for the duration of his presidency (ten years), listening to Executive Directors read dreary speeches.

Given this degree of overview and second-guessing, it is astonishing that the World Bank ever gets anything done at all, let alone that it does it well. Given the number of players involved, any significant change often results in political gridlock. Even changes that most are in favor of end up being blocked because others fear that the change could make things worse. Hanging over everything is disagreement as to what the mission of the World Bank should be.

The confused mission of the World Bank

The World Bank got off to a confused start when it was created, along with the International Monetary Fund (IMF), at the Bretton Woods Conference in 1944. As John Maynard quipped at the time, the Conference had created something called a bank that was actually a fund, as well as something called a fund, that was actually a bank.

The World Bank is even more confusing than that. It’s an odd combination of a bank, a university and foundation. It’s an institution that lends money (a bank), a think tank of intellectuals attempting to figure out difficult issues like how do you alleviate poverty in the poorest countries in the world (a university) and a philanthropic organization that tries to do the ultimate good in the world—eliminate global poverty (a foundation).

The actual name of the World Bank was the International Bank for Reconstruction and Development. The main idea behind its creation was to fund the reconstruction of Europe. But the new institution proved too small and too slow to achieve this goal, which was taken over by the Marshall Plan. The new institution therefore turned its attention to the second part of its mission, i.e. development.

For the next couple of decades, the IBRD was a small, sleepy, slow-moving financial boutique, funding miscellaneous economic development projects in developing countries or colonies. A soft loan window was opened (IDA) and a private sector adjunct (IFC) was created.

The World Bank continued in this mode until 1968 when Robert McNamara took over as president and transformed it into a large, bustling, modern 20th Century corporation, expanding lending more than tenfold in the course of his thirteen-year tenure. He dramatically increased the World Bank’s role in agriculture and education and opened up new lines of business in health, population, nutrition, and urban development. He articulated a new role for the World Bank in alleviating global poverty, passionately calling attention to the plight of the poorest 40 percent of the world’s population who had been essentially untouched by development lending. But his most lasting accomplishment is that--for better and for worse--he introduced and embedded hierarchical bureaucracy in the World Bank’s management systems and thinking.

As a result, the World Bank became a lending machine. For all the talk about poverty alleviation, education, health and so on, the management systems all focused on, and supported, getting out the lending program. Everyone who worked in the organization knew that this was the bottom line. The social goals were nice, but what really mattered was lending. This thinking still persists.

A succession of Caucasian male presidents thereafter—Tom Clausen from Bank of America, Barber Conable from the US Congress, Lew Preston from JP Morgan, Jim Wolfensohn from investment banking, the neo-con Wolfowitz from the Department of Defense, Robert Zoellick the former US trade representative all made little impact on this basic management model.

To fight poverty with passion and professionalism for lasting results. To help people help themselves and their environment by providing resources, sharing knowledge, building capacity and forging partnerships in the public and private sectors.

The organization was for the first time formally focused on fighting poverty. However as all of the management systems and processes remained focused on getting out the lending program, the mission statement has had little operational impact. The World Bank still grinds along as a lending machine that sometimes pays attention to poverty reduction issues.

Moreover the most important contributions that the World Bank has made since its creation have been the policy changes that it has been able to foster in the developing countries. These gains have been far more important than the impact particular projects that the World Bank has financed. Yet most of the management systems and attention are still focused on the lending machine.

At the same time, even the degree to which the World Bank should focus on poverty remains controversial. The developing countries themselves indicate from time to time that they would prefer more focus on growth of their economies as a whole and making them more competitive, with less focus on social engineering for the benefit of disadvantaged groups. They note that the policies pushed by the West for developing countries are pursued much less vigorously in their own countries. At a time when the global economy faces the prospect of reduced growth and even a recession, the World Bank, it is said, should stop meddling in social engineering and focus on growth and competitiveness.

Does the World Bank staff have the competence to tackle these issues? Overall, the staff remains talented, despite systematic de-skilling in the last fifteen years in the name of improved efficiency. Instead of offering careers for the best and brightest as it used to, the World Bank now offers mainly short term assignments. Some question whether these short-term staff have the necessary depth of experience, the management skills or the cutting edge knowledge relevant to the emerging Creative Economy of the 21st Century.

A broken business model

The World Bank’s business model is complicated. There are several different institutions (IBRD, IDA, and IFC). The overall gist of all of them is that the World Bank Group lives on the difference between the cost of the money it borrows (or receives) and the money it lends. Its lending activities thus fund its policy advice, which is arguably much more important than its lending for individual projects. There is thus pressure to keep lending, even when its lending is not really relevant. It also results in the anomalies of a large amount of staff resources being spent on economic reports for countries who could easily afford to pay for them. Why not have a simpler and more agile business model in which valuable activities are paid for by those who value them and who can afford to pay?

At the same time, a large part of the World Bank’s activities are “off budget” and funded by a huge array of “trust funds” which finance activities that various interest groups want the World Bank to manage but cannot get the World Bank to undertake directly. These activities are only partially under the control of the formal governance structure.

An impossible management challenge

The complexity of the work of the World Bank is bewildering. The expertise involved is much greater than any Fortune 50 corporation or the IMF. No single individual can possibly master the array of disciplines involved: finance, banking, macroeconomics, microeconomics, infrastructure, agriculture, industry, education, health, nutrition, population control, governance, institution-building and so on, or the details of around a hundred borrowing countries, particularly the most difficult and poorest countries with the least developed institutions.

The president of the World Bank is thus surrounded by, and dependent on, the advice of technical experts in disciplines with which he or she cannot be fully familiar. He or she has to deal with the agendas of the players in the heavy governance structure, the agendas of the managers and staff who sometimes view the president as a temporary visitor who doesn’t understand what’s going on, the agendas of all the global interest groups that try to influence the World Bank’s activities, as well as the pressures of unpredictable world events that can disrupt even the best-laid plans.

In complexity, the job resembles the US presidency or the secretary-general of the United Nations. There is nothing that can fully prepare an individual for it.

Some paradoxes facing the World Bank

The World Bank thus offers many paradoxes that any incoming president has to face, including:

What is the World Bank’s true mission?

Why should the World Bank have such a heavy governance structure?

What should be done to ensure that the World Bank staff remain at the cutting edge of expertise?

Does the World Bank have the truly global expertise needed for its mission?

Should the World Bank’s governance be focused on the lending machine when its influence and impact is in its policy advice is much more important?

What should be done about the World Bank’s broken business model?

Why should an institution focused on developing countries be controlled by the US, Europe and Japan?

The candidates for president

In the past, the US nominee for the presidency was automatically accepted by the Board of Directors. Now there is at least a semblance of an international selection process. After all, why should the president of the World Bank always be an American when the activities of the World Bank are in the developing countries?

Three candidates have been nominated to replace Robert Zoellick.

The US has nominated Jim Yong Kim (born December 8, 1959) He is a Korean-American physician and 17th President of Dartmouth College. He was formerly the Chair of the Department of Global Health and Social Medicine at Harvard Medical School, and was a co-founder and executive director of Partners in Health. In 2009, Kim was named the 17th President of Dartmouth College. Kim is the first Asian-American to assume the post of president at an Ivy League institution. Kim immigrated to the U.S. at age five, earned an undergraduate degree from Brown University and picked up a medical degree and doctorate in anthropology at Harvard University.

Some African countries (South Africa, Angola and possibly Nigeria) have nominated Ngozi Okonjo-Iweala (born June 13, 1954) was appointed in July 2011 as the new Minister of Finance for the Federal Republic of Nigeria. Prior to this appointment, she was the Managing Director of World Bank (October 2007 - July 2011). She served as finance minister from July 2003 until her appointment as foreign minister in June 2006, and as foreign minister until her resignation in August 2006. She was educated at Harvard University, graduating magna cum laude with an A.B. in 1977, and earned her Ph.D. in regional economic development from the Massachusetts Institute of Technology (MIT) in 1981.

Brazil has nominated a Colombian citizen, José Antonio Ocampo Gaviria (born 20 December 1952). He is currently Professor of Professional Practice in International and Public Affairs and director, Economic and Political Development Concentration at the School of International and Public Affairs, Columbia University. Prior to his appointment, Ocampo served in a number of positions in the United Nations and the Government of Colombia, most notably in the United Nations as Under-Secretary-General for Economic and Social Affairs and Executive Secretary for the Economic Commission for Latin America and the Caribbean, and in Colombia as Minister of Finance and Public Credit and Minister of Agriculture. Graduated from the University of Notre Dame in 1971 with B.A.s in Sociology and Economics, in 1976 he received his Ph.D from Yale University

Are any of these candidates up to the challenges that the World Bank presents? Arguably, there is no human being in the world who is fully equipped to resolve the issues now facing the World Bank. It is what is sometimes known as a widow-making job, i.e. a job in which the incumbent is almost doomed to fail.

Some are encouraged that the US nominee, Kim, is different from his predecessors in several respects--an Asian-American with real development experience. Others are dismayed that he is not another banker or a world figure.

"It is not a slam dunk. It is not an obvious choice," one commentator said of Kim. Also speaking of the US nominee, Clay Lowery, the U.S. Treasury’s assistant secretary for international affairs from 2005 to 2009, said: “[Kim's] biggest challenges will be his ability to manage a large organization, expand his universe of thinking to programs that catalyze economic growth, and maneuver effectively in very high political circles.”

Most US commentators see Kim as the most likely selection. This is partly because of tradition (the US nominee has always been accepted in the past), partly because of international politics (the US recently supported the European candidate for the IMF and may receive a quid pro quo), partly because the candidate has an international aura (a Asian-American citizen who was born in Korea) and partly because the political support for either of the two alternatives is not clear-cut. Defeating the US nominee would probably require the unanimous support of the developing countries, and a strong case that their candidate was demonstrably superior to the US nominee.

What the new president needs to do

Whoever the next president is, he or she should learn from the most successful of the predecessors, Robert McNamara, and from the failures of McNamara’s successors, as well as other successful change efforts in large organizations:

Do quickly develop and put in place new systems and processes that support and reinforce this vision of the future, drawing on the practices of dynamic linking.

Do rethink the World Bank’s business model in terms of an organization that enables access to expertise wherever it is located, rather than the possessor of its own knowledge to which access is determined by lending.